Buy and Hold: Underwater Is Normal
Buy and hold means purchasing an investment and keeping it through market cycles rather than trading in and out. It avoids every dealing cost and every timing decision, and its difficulty is entirely in holding through declines that feel like the strategy failing.
How it works
The strategy is one decision followed by nothing. Buy, and then do not sell — through falls, through news, and through everything that makes selling feel sensible.
Its advantages are all subtractions. No dealing costs, no spread, no tax on realized gains, no timing decisions and no opportunity to get any of them wrong.
Every avoided trade saves a round trip. Each one skipped keeps the spread and the commission in the account — small individually and substantial across a decade of activity that never happened.
Deferred tax compounds. Money that would have gone to a tax bill stays invested and earns, which is a real advantage over an approach that realizes gains regularly.
What holding actually feels like
Buying is easy and holding is not. Every part of the difficulty is concentrated in the periods when the position is down and selling would end the discomfort immediately.
A holder of the S&P 500 from 1950 to 2026 saw a new closing record on only about 7% of trading days. The rest were spent below an earlier high, and the longest wait ran 7.5 years, from January 1973 to July 1980, for an index that ended the period vastly higher than it began.
Which means being down from a high is the default condition. Not a signal, not a problem, and not evidence of anything — simply what holding an appreciating asset looks like from the inside. Expecting that in advance is most of what makes the strategy survivable.
In practice
Once trading is removed, the fee is the whole cost. Which is why fund choice carries so much weight here: five basis points a year removes 1.5% of a thirty-year pot and 1.5% a year removes 36.5%.
Volume, spreads and session timing stop mattering. They are costs of trading, and there is no trading.
The horizon has to be genuine. Over one year the approach is indistinguishable from having bought at a random time; over twenty it is a different proposition entirely.
A gap matters only to someone transacting. For a holder who was not going to sell that morning, it is a price they did not act on.
A stop is incompatible with it. The strategy is holding through declines and a stop is an automatic exit from one, and running both means running neither.
The saving is cumulative and invisible. Nobody notices the costs they did not pay, which is why the advantage is easy to underestimate and easy to give away.
What it is not a substitute for
It does not make a bad holding good. Buy and hold applied to a single company that fails produces a complete loss held patiently, and the strategy’s evidence base comes almost entirely from broad indices rather than from individual shares.
The distinction matters more than anything else on this page. A broad, diversified holding has a mechanism for recovery — failing constituents are replaced by growing ones. A single company has no such mechanism, and holding one through a decline is a different decision wearing the same name.
The strategy also has a hidden requirement that has nothing to do with markets: not needing the money. Holding through a long decline is only possible for someone who will not be forced to sell during it, and that depends on having enough cash elsewhere to cover whatever life produces.
Which makes an emergency fund part of the investment strategy rather than separate from it. The investor who has to sell in the worst month is not following this approach, whatever they intended. Size the cash reserve first and invest what is genuinely spare — that ordering is what converts an intention to hold into an ability to.
What buy and hold is not
It is not doing nothing. It is deciding once and then not revisiting.
It is not without risk. It takes the full fall, every time.
It is not for single companies. The evidence is about indices.
And it is not passive selection. What you bought still matters.
How this connects
Its opposite is market timing, which tries to add return by stepping aside before declines and pays for every attempt in costs, tax and missed recoveries.
Rebalancing is the one trade it usually allows, bringing a mix back to its targets on a schedule rather than in response to price.
Dividend reinvestment keeps the holding whole, because income buys more units instead of sitting in cash and dragging on the result.
Capital gains tax is postponed rather than avoided, which is why holding inside a tax-advantaged account changes the arithmetic of selling later.
A three fund portfolio is the usual concrete form: a handful of broad funds bought once and held, with nothing to decide between annual reviews.
A bear market is the test it is built to pass, and risk tolerance measured in a calm year tends to overstate how much of a fall an investor can actually sit through.
Warren Buffett is its best-known advocate, although his own record came from concentrated company selection, which is the version this page warns about.
And passive investing is the same idea applied to fund choice: owning the market rather than choosing within it, so the decision not to trade extends to the holdings themselves.
When it fails
A flat decade produces a flat decade. There is no mechanism in the strategy to improve on what the holding did, which is honest and is the specific case people find hardest to sit through.
The second failure is holding a single company through a permanent decline. Patience does not repair a broken business.
A third is holding without a horizon. Selling in year three of a twenty-year plan was never buy and hold; it was a trade with a long stop.
A fourth is ignoring the fee. With trading removed, the annual charge is the entire remaining cost and it compounds for the whole period.
And a fifth is confusing it with not looking. Reviewing what you own annually is compatible with the strategy; reacting to a price is not.
The original data
Of the 24,971 trading and investing videos measured for this site, 14 have “buy and hold” or “buy & hold” in the title, from 10 channels, at a median of 103,585 views.
The question: Down 30% and the plan says do nothing. Do nothing?
A fall deep enough to erase years of gains is the shape of the problem. The S&P 500 closed at 1,565.15 on 9 October 2007 and at 676.53 on 9 March 2009, a loss of 56.8%, and a holder who bought at that peak did not see the price again until 28 March 2013. Write down, before buying, the decline you would sit through and the number of years you intend to hold — those two figures decide whether this strategy is available to you, and neither of them is about the market.
Related
Index funds is what the evidence for this approach is actually about. Dollar cost averaging is how most people build the position. And drawdown is what holding through a decline actually involves.
The figure to know in advance is the share of time spent below a previous high. It is natural to assume a good investment spends most of its time making new highs and occasionally dips. It is the other way round, and knowing that beforehand is most of what makes holding possible.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.